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Money laundering

Money laundering

Research by the International Monetary Fund estimated that the amount of money laundered, globally, in one year could be between 2 to 5% of global GDP, equivalent to $800 billion to $2 trillion US dollars.

A new professional statement

The risks of bribery and corruption, money laundering and terrorist financing cut across our profession, regardless of geography or industry specialism. To help the profession identify and manage these risks, RICS recently introduced the draft professional statement on Countering Bribery and Corruption, Money Laundering and Terrorist Financing.

Once the document is finalised, all RICS professionals and regulated firms will be obligated to adhere to the professional statement. The professional statement aims to provide the profession with a clear description of how to manage these risks within the RICS Rules of Conduct. It sets out professional and ethical behaviour by providing practitioners and firms with clear and consistent principles, informing them about what constitutes a breach of conduct.

Key changes to the anti-money laundering regulation in the UK

Updated anti-money laundering regulations came into effect in the UK on 26 June 2017. A guide for surveying professionals on the anti-money laundering regulation changes. Presented on 24 July 2017 by Alex Ktorides of Gordon Dadds.

Our global responsibility to counter money laundering

The purchase of property has the potential to be used by organised criminals to launder the proceeds of criminal activity. This is due to the large number of criminal funds which can be "cleaned" in a single transaction. It is therefore critical that all professionals working in the sector are acutely aware of the issues and appropriately trained to identify and report any suspicions of money laundering.

The profession needs to work with governments, supervisors and law enforcement agencies to ensure our industry is viewed by criminals as a hostile destination for money laundering. As the profession’s regulatory, RICS takes robust action against those who fail to act with integrity, as well as reporting such issues to law enforcement agencies. This is not only in the interest of the public, but also in the interest of professionals, who want to ensure that the reputation of their profession is maintained.  Therefore, it is important that RICS-accredited professionals and firms understand their obligations under Rule 3 of the RICS Code of Conduct and, where applicable, statutory obligations under local legislation, such as 'The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017)' in the UK.

It is also important that the profession takes a leading role in ensuring that business interactions with the built environment are transparent and serve the public good. Unfortunately, real estate is an often-overlooked element of the global responsible business agenda. That is why we have been working with the United Nations Global Compact to identify the most critical issues facing companies with a stake in land, real estate and construction in relation to the 17 Sustainable Development Goals (SDGs)

Find out more about our work on reponsible business

With our profession impacting – either directly or indirectly  most of the SDGs and with its cross-sectoral reach, we can be a powerful driver for making the SDGs a reality, and contribute to a safe, sustainable and transparent built environment.

Information you need to know

  • All our professionals and firms must be aware of the risks of money laundering and terrorist financing and take steps to ensure that they do not engage in business activities with criminals seeking to launder money or finance terrorism activities, to comply with the Rules of Conduct (see rule three ethical behaviour for individuals and rule three professional behaviour for firms).

    Recognising the need to ensure clarity and promote a better understanding of the risks of money laundering and terrorist financing, we are currently developing a globally applicable professional statement, which will outline expectations of our professional in this area in more detail.

    What to look out for

    There are a number of red flags that property professionals need to be aware of. These can be classed in five main categories:

    1. The client
    2. The parties
    3. The source of funds
    4. The transaction
    5. The instructions

    It is important that professionals understand the factors that may indicate suspicious activity in each of these areas. These are described in a table that can be downloaded on the right-hand side. Our thanks to Alex Ktorides from Gordon Dadds for his assistance in producing this.

    When you have assessed the money laundering risks to your business, we recommend that you consider three lines of defence, which are: your front line staff; your policies, systems (eg e-verification of passports) and controls; and senior management and internal specialists and audit functions.

  • The regulations transpose the fourth Money Laundering Directive (4MLD) into UK law and repeal the Money Laundering Regulations 2007 (MLR 2007). The fourth Money Laundering Directive was updated to reflect changes to the Financial Action Task Force (FATF) Anti-Money Laundering and Terrorist Financing recommendations.

    The MLR 2017 contain several amendments which require the supervised estate agency sector to make significant changes to their processes and procedures to comply with the regulations. Below is a high-level summary of some of the key issues which impact the estate agency sector:

    HMRC

    Real estate businesses which fall within the scope of the regulations must register with HMRC. Under the MLR 2017, it is a criminal offence to act as a beneficial owner, officer or manager of an estate agent without having been approved by HMRC. This prohibition is not breached if an application is submitted before 26 June 2018.

    Overseas subsidiaries

    Parent undertakings, which are regulated under MLR 2017 in group companies, are obligated to ensure that the anti-money laundering (AML) policies and procedures they establish apply to all subsidiaries and branches, including those situated outside of the UK when engaging in any regulated activity.

    Firm-wide risk assessments

    The MLR 2017 requires a firm-wide risk assessment to be conducted taking into account specific risk factors as listed in the MLR 2017. A written record of the firm-wide risk assessment must be maintained.

    Customer Due diligence (CDD)

    All estate agents must carry out CDD on their customers and the beneficial owners of their customers prior to entering into a business relationship with them and at other specified times. In contrast to the position under the MLR 2007, the MLR 2017 specifically states that estate agents are considered to be entering into a business relationship with a purchaser as well as a seller at the point when the purchaser’s offer is accepted by the seller. The MLR 2017 continues to permit estate agents to rely on CDD carried out by certain other regulated entities including fellow estate agents. However, the responsibility for meeting the MLR 2017 CDD requirements are non-delegable.

    Simplified Due Diligence (SDD)

    Under the MLR 2017, there will cease to be "automatic" SDD requirements. Instead, various risk factors will need to be considered in deciding whether SDD is appropriate; it will only be appropriate if there is a low risk of money laundering or terrorist financing.

    Enhanced Due Diligence (EDD)

    Must be applied on a risk-sensitive basis in any situation which presents a higher risk of money laundering or terrorist financing. The MLR 2017 sets out specific circumstances in respect of which EDD must be applied.

    Politically exposed Persons (PEPs)

    In an important departure from the MLR 2007, the MLR 2017 now defines PEPs as including domestic PEPs as well as foreign PEPs. Regulated firms must have in place appropriate risk-management systems and procedures to determine whether a customer, or the beneficial owner of a customer, is a PEP or a family member or a known close associate of a PEP.

    Training and controls

    The MLR 2017 extends the requirement to provide relevant employees with regular AML training to include training on data protection. The MLR 2017 imposes a number of additional obligations including those aimed at ensuring top-level commitment is given to AML issues and that independent audit functions assess the adequacy of procedures.

    Further guidance

    The FCA and the Joint Money Laundering Supervisory Group have issued relevant guidance for their respective supervised sectors. HMRC’s guidance is in draft in respect of estate agents so should be reviewed once the final version is made available.

    This is a summary of the key changes brought about by the regulations. This is not a complete guide to all changes and does not constitute specific legal advice, but seeks to highlight certain key issues. We thank Zia Ullah, Partner at Eversheds Sutherland and Helen Harvey, Associate at Eversheds Sutherland and Alex Ktorides, Partner Gordon Dadds  for providing this summary.

  • We are actively engaging with HM Treasury and HMRC to ensure guidance is developed which is fit for purpose and meets the needs of the estate agency sector urgently. We are looking to ensure that there is an adequate transitional period for estate agency businesses to update their processes and procedures without risking criminal prosecution.

    We wrote to the Economic Secretary to the Treasury Steve Barclay MP expressing the need for a transitional period to implement the regulations and an open consultation on estate agency sector guidance.

    We also provided a response to the closed consultation undertaken by HMRC on updated guidance for the estate agency sector. Our response to the consultation focuses on two key aspects: the process of consultation and the content of the guidance; specifically, HMRC’s interpretation of the timing of when a business relationship is formed with a purchaser (as well as a seller).

    The Minister’s written response to our letter provides some level of assurance for firms:

    "HMRC, as the supervisor for estate agents, can be expected to take a common sense approach to compliance with the new money laundering regulations in the coming weeks to account for the short lead-in time business have had to implement changes. As an example, HRMC will take into account a business’s understanding of the new requirements and any plans they have in place to implement necessary changes within a reasonable timeframe, where immediate full compliance might have been practically achieved."

    Another matter we raised involved the HMRC’s interpretation of when a business relationship is formed with a purchaser (as well as a seller).

    The Minister clarified that he is not expecting estate agents to apply new requirements on all customers where the business relationship has already been established and that this will be clear in HMRC’s guidance.

    Our discussion with HM Treasury and HMRC are ongoing. We aim to ensure the development of guidance that is fit for purpose and meets the needs of the estate agency sector urgently.

  • HMRC webinar

    To assist the estate agency sector, last year HMRC recorded a free one-hour webinar training video; we strongly recommend that anyone who needs an awareness of the money laundering regulations watch it. Although this has not been updated to reflect the MLR 2017, much of the content remains highly relevant.

    Registration requirements

    In the UK, it is a statutory requirement for any business that carries out any activity defined as estate agency work under Section 1 of the Estate Agents Act 1979 to register with HMRC. Being an RICS-regulated firm does not exempt you from this requirement. HMRC offer guidance on who may fall within the requirement to register. HMRC’s guidance also includes the application process and fee structure.

    Reporting requirements

    The UK Money Laundering Regulations apply to anybody who is in the "Regulated sector", which covers professionals considered to be at high-risk of being used by criminals to launder money. Estate agents are included in this sector although managing agents and letting agents are not.

    RICS-regulated firms are required to put systems in place to avoid money laundering and to report suspicious activity and are required to report suspicion of money laundering as soon as possible to the National Crime Agency (NCA) (previously the Serious Organised Crime Agency), regardless of whether they proceed with the transaction.

    Firms that are not within the regulated sector may also be required to submit a Suspicious Activity Report (SAR) as well as take steps to protect against the risk of money laundering. You may commit an offence if you have knowledge or suspicion of money laundering activity or criminal property, assist anyone in dealing with it, and then fail to make a SAR. Submitting a SAR may provide a defence against committing a money laundering offence.

    The NCA has produced helpful guidance on how to access their portal, submit a SAR and the information that should be included in your report. You can also us the NCA's helpline.

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